The ultra-sweet-sounding tender offer is an offer to purchase some or all of the shares in a corporation. The price is usually offered at a premium relative to the market price but it has to go down for that price at a certain time. The premium is offered as an incentive to sell.
A publicly traded company can make a tender offer to buy back some of its own stock. When a company executes a tender offer directly to shareholders without the board of directors’ (BOD) consent, that’s what’s known in the biz as a hostile takeover.
The advantage of a tender off is that the investor doesn’t have to buy shares until a set number of shares are tendered. This gets rid of the need for large upfront cash outlays and prevents the investor from liquidating a stock position if the offer falls through. The person acquiring the stock can use escape clauses in the offer, releasing them from liability for buying shares. If the government rejects a proposed acquisition for anti-trust reasons, which can happen, the acquirer can refuse to buy tendered shares. The investor can gain control of the company in less than a month if shareholders accept the offer. You can often make more money investing in a tender offer than on the regular ole’ stock market.
Think of a tender offer as an expensive way of doing a hostile takeover. You act tender but actually, it’s really hostile underneath. The investor hires a proxy to actually do the deal. A bank has to verify all tendered shares and then grant payments on behalf of the investor, which takes a lot of time. Remember that with a tender offer, the whole thing could fall through at any moment, so you could end up losing money in the end.
We’re starting a tender takeover of our competitor, provided it doesn’t get blocked by the SEC.